How are investment trusts regulated?

Investment Trusts are quoted companies listed on the London Stock Exchange with Boards of Directors; they are subject to the listing rules of the UK Listing Authority established under the Financial Services and Markets Act. Investment Trusts are also subject to the Companies Act 1985, as amended. The conduct of investment managers to promote packaged products (ISA, Share Plans) with underlying investment trust investments, are regulated by the Financial Conduct Authority in the United Kingdom.

What is the difference between an onshore investment trust and an offshore investment company?

They are both closed end investments quoted on the London Stock Exchange offering shareholders a specific investment objective from a diversified portfolio of investments. There are some differences in tax treatments: the Channel Islands based funds generally issue dividends gross; whereas UK trusts, as equities, issue dividends net. Both are eligible for an ISA. One important difference is in investment limits: an onshore trust cannot invest more than 15% of its gross assets (at the time of investment) in any one single holding, whilst no such limit applies to the Channel Islands-registered companies.

What does gearing mean?

Unlike unit trusts, investment trusts can borrow money and invest the proceeds. This will increase returns to investors in a rising market (and vice versa in falling markets). This is known as financial gearing. A gearing factor of 120 means that on a trust with equity of £100 million it has £20 million of debt (bank borrowings).

There is also structural gearing, which is normally a term applied to split capital trusts or multi-class trusts. In a simple trust, typically each class of share is entitled to either all the income from the underlying portfolio or all the capital growth. If each class of share was issued in a 50:50 proportion, the income share could be said to have double gearing. Given that a rise in the portfolio would result in a disproportionate rise in the entitlement of each share class, the valuation tools used to analyse structurally geared trusts are different. Typically analysts on income shares look for hurdle rates (how much the underlying assets have to grow each year for investors to get their stake back), and redemption yields (annual yield on the trust to wind up).

How many investments are held within an investment trust portfolio and how are they managed?

Typically anything from 50 to 100 shares. The Fund Manager must have regard to the objective of the trust. To that end the underlying stocks are bought or sold to deliver either capital growth or income.

How actively are investment portfolios managed?

The "portfolio turnover" (how frequently shares are bought and sold) varies from fund to fund. Technology portfolios may get turned over more quickly than, say, a fund investing in convertibles.

Many of the terms, used in relation to the performance of investment trusts, are technical in nature. How do I find out more?

You will find many of the technical terms defined in the Glossary. If you are uncertain, you should consider taking independent financial advice.

What is the spread for an investment trust and who actually sets this, also what is the standard spread? And does this spread include the government stamp duty or not?

The spread is the difference between the bid price (the price you receive when you sell shares) and the offer price (the price you pay to buy shares). The spread depends on supply and demand and is set by marketmakers. It does not include government stamp duty.

What is the mid price?

It is the average of the closing buy and sell prices. The underlying investments of an investment trust are valued at the previous day's closing mid prices.

How are dividend dates and rates calculated and by whom?

Dates are set, ideally, to provide a regular spread of income and are most likely on a quarterly basis. The amount of the dividends will depend on the underlying portfolio and the objective of the trust.

Is the discount/premium of a share calculated on its, mid price/bid price/ or offer price?

All are calculated with reference to the previous closing mid price.

What service does the company secretary perform for an investment trust?

The company secretary co-ordinates all aspects of the trust to ensure that it complies with its legal and financial reporting including any circulars, report and accounts, interim reports; convening board meetings and minutes, as well as liaison with the Board and external advisers.

What service does the Board of Directors for a trust perform?

The Board is responsible to shareholders; it oversees the external relationships, principally the fund management relationship, to ensure that the trust's objective is met.

What role do the Registrars perform?

The Registrars maintain a register of shareholders and warrant holders.

What are the benefits of investing in a saving for children product?

There are a hundred good reasons to start saving for a child, whether it's short term saving for a present; for longer term saving for their gap year before university; for their wedding day; or simply to help them get a head start in life.

I can't afford to invest a lot each month. Is it still worthwhile?

It is still worthwhile saving smaller amounts on a regular basis. If you save £30 per month over 10 years at a growth rate of 5%, you would get back over £4,658.40. Over 12 years you would get back over £12,300.

What are the tax implications of investing for children?

As every individual's tax circumstances is different, if you are in any doubt, you should seek independent advice. However, the following gives a brief summary of the tax reliefs available. If the parent holds an account or makes an investment on behalf of their child which generates an income of more than £100 a year, it will be taken as part of the parents' income, not the child's and they will have to pay income tax on the full amount earned. This applies until the child is 18, provided they remain unmarried. One possible solution to the income tax problem is to invest in growth funds which don't seek to generate an income. However, the fund may still be liable to Capital Gains Tax if it grows by more than a certain amount each tax year. Inheritance tax is a more complicated issue and may be payable by your children on your estate. However, one way of minimising their tax bill is to start giving them gifts now. You are allowed to make tax free gifts to whomever you want for as much as you want, provided it is an outright gift from which you receive no benefit. If you live for more than seven years after you make the gift, there will be no tax to pay on it by your children. Some gifts to your children are always free of tax, such as:

Wedding gifts up to £5,000 for each of your children, £2,500 for each grandchild and £1,000 each to anyone else;

Other gifts up to a total value of £3,000 a year, plus any unused part of the previous tax year's £3,000 exemption

What are the tax implications for gifts from grandparents, relations or friends?

If anyone other than the parents makes a gift or an investment on behalf of a child, then there is no income tax to pay as long as the income generated is within their annual allowance. Any income earned over and above this amount will be charged to the parents. In order to register a child's account to be paid interest tax-free, a parent or guardian must complete form R85 with the child's details and sign it on their behalf. Interest can then be paid gross until the child is 16, as long as the deposit came from someone other than the parents.

What are the tax implications when writing your assets in trust?

People in Britain waste as much as £1.2 billion* each year through neglecting their inheritance tax planning. When you die, if you leave a substantial amount of your possessions to anyone other than your partner, they may have to pay inheritance tax on what you give them. This can be avoided by writing your assets in trust in your child's name and making them the legal owner. A trust is a separate legal entity which is set up on behalf of a named beneficiary – usually by a parent on behalf of their child. The assets are protected and managed by the trustees on behalf of the child until they are 18. Trusts are extremely cheap and simple to set up, which is why it's always wise to consider putting all your assets, including your life assurance, into trust. The 40% inheritance tax can be avoided, as the assets already belong to the beneficiary. Some companies offer specialist savings schemes for children which are automatically written in trust for this very purpose. One or both parents can become trustee to the trust, and retain legal control until the child reaches 18. The parent has no legal rights to the proceeds and the investment is no longer part of the parent's estate – which is why there would be no inheritance tax due upon the death of the parent. If you know you won't need to access your investment and are prepared to hand over your assets to your child, then there are significant advantages to be had by writing your investment in trust.

*Source of Information: IFA Promotion

How long can I afford to wait before cashing in my investment?

Investing on behalf of your children gives you more flexibility than other savings motives, because it tends to be for the longer term. This gives you a wider choice between the savings and investment products available.

The type of savings account or investment will depend on the reasons why you are saving. Do you want your money to grow to provide your children with a lump sum when they come of age, or do you want it to produce an income to provide for regular expenses? The length of time you intend to save for helps in determining which product is most appropriate – there's no point investing in the stock market if it's for less than, five years, while leaving large sums indefinitely on deposit in a normal savings account means that your savings will be seriously affected by inflation.

How much risk should I take ?

The next thing to ask yourself is how much risk you are prepared to take with your child's savings. If it's money invested for the longer term, you can afford to take more risk and have the potential of greater growth. However, you may wish to sacrifice the possibility of greater growth for a low-risk and steady investment.

You have to be comfortable with your investment decision – regardless of how long you want to invest – which is why it's important to consider a wide variety of different types of products which take different degrees of risk. Contact your financial adviser for further information and advice.

What is an ISA?

An ISA is a tax-efficient scheme for saving. You do not pay Capital Gains Tax or income tax on any profit made from an ISA. The Government introduced ISAs in 1999 as a replacement for PEPs and TESSAs.

Who can invest in an ISA?

Anyone aged 18 or over may invest in an ISA, provided that they are resident in the UK for tax purposes. This includes members of the armed forces and Crown employees serving overseas and their spouses and civil partners. ISAs may not be taken out in joint names.

Are there different types of ISA?

Yes, there is the option of a Cash or Stocks and Shares ISA.

In a Stocks and Shares ISA you can invest up to £15,240 for the 2015/2016 tax year.

You can only have one Stocks and Shares manager for each tax year, Aberdeen Investment Trusts do not offer a cash ISA.

What types of ISA does Aberdeen offer and how much can I invest?

Aberdeen offers the Stocks and Shares ISA. If you invest in the Aberdeen Investment Trust ISA you can invest up to £15,240 for the 2016/2017 tax year.

How long will I have to keep my investment for?

There is no minimum period that you must hold your ISA for. Although ‘Stocks and Shares’ ISAs are seen as medium to long term investments, you may sell them at any time.

Does Aberdeen offer CAT Standard ISAs?

The Government has set CAT Standards for ISA. CAT stands for fair Charges, easy Access and decent Terms. We do not offer CAT standard ISAs for the following reasons:

There is a danger that the CAT-mark is perceived as a guarantee

There is no scope for the payment of independent financial advice. We believe this to be vital, especially for inexperienced investors

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NMPI Status
The Company currently conducts its affairs so that securities issued by Aberdeen Smaller Companies Income Trust PLC can be recommended by financial advisers to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream pooled investment products (NMPIs) and intends to continue to do so for the foreseeable future.

The Company’s securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are securities in an investment trust.

The AIFMD is intended to offer increased protection to investors in investment products that do not fall under the existing European Union regime for regulation of investment products known as “UCITS”.

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